SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 27,September 26, 1999
Commission file number 0-21294
Aseco Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2816806
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Donald Lynch Boulevard, Marlboro, Massachusetts 01752
(Address of principal executive offices)
(508) 481-8896
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 27,September 26, 1999.
Common Stock, $.01 par value 3,850,6583,908,370
(Title of each class) (Number of shares)
1
ASECO CORPORATION
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at June 27, 1999 and March 28, 1999 3
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended June 27, 1999
and June 28, 1998 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended June 27, 1999
and June 28, 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at September 26, 1999 and March 28, 1999 3
Condensed Consolidated Statements of Operations
(unaudited) for the three and six months ended
September 26, 1999 and September 27, 1998 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended September 26, 1999
and September 27, 1998 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 27,September 26, March 28,
(in thousands, except share and per share data) 1999 1999
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 3791,652 $ 1,229
Accounts receivable, less allowance
for doubtful accounts of $1,016$1,014 at
June 27,September 26, 1999 and $1,027 at March 28, 1999 5,3556,437 4,041
Inventories, net 5,5315,624 5,893
Prepaid expenses and other current assets 1,964330 1,918
------------------------------------ -----------------
Total current assets 13,22914,043 13,081
Plant and equipment, at cost 7,3487,341 7,341
Less accumulated depreciation and amortization 5,4375,666 5,207
-------------------- -----------------
-----------------
1,9111,675 2,134
Other assets, net 115124 109
$15,255 $15,324
=================------------------- -----------------
$15,842 $ 15,324
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 5751,351 $ 475
Accounts payable 2,5452,865 1,964
Accrued expenses 2,6612,509 2,868
Current portion of capital lease obligations 84 12
------------------------------------ -----------------
Total current liabilities 5,7896,729 5,319
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued and outstanding --- ----- --
Common stock, $.01 par value: Authorized 15,000,000
shares, issued and outstanding 3,850,6583,908,370 and 3,832,799 shares
at June 27,September 26, 1999 and March 28, 1999, respectively 39 38
Additional paid in capital 18,33218,422 18,321
Accumulated deficit (8,933)(9,376) (8,382)
Foreign currency translation adjustment 28 28
------------------------------------ -----------------
Total stockholders' equity 9,4669,113 10,005
------------------- -----------------
-----------------
$15,255 $15,324
=================$ 15,842 $ 15,324
=================== =================
See notes to condensed consolidated financial statements
3
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
Three months ended JuneSix months ended
September 26, 1999 September 27, June 28,1998 September 26, 1999 September 27, 1998
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 4,7175,652 $ 6,6304,395 $ 10,369 $ 11,025
Cost of sales 2,813 4,060
----------------- -----------------3,345 3,641 6,158 7,701
--------------------- --------------------- --------------------- ---------------------
Gross profit 1,904 2,5702,307 754 4,211 3,324
Research and development costs 856 1,661850 1,217 1,706 2,876
Selling, general and
administrative expense 1,614 2,384
----------------- -----------------1,859 2,151 3,473 4,537
Restructuring charge -- 1,300 -- 1,300
--------------------- --------------------- --------------------- ---------------------
Loss from operations (566) (1,475)(402) (3,914) (968) (5,389)
Other income (expense),:
Interest income -- 31 58
Interest expense (41) (54) (50) (59)
Other, net 15 13
----------------- ------------------- 20 24 11
--------------------- --------------------- --------------------- ---------------------
(41) (3) (26) 10
--------------------- --------------------- --------------------- ---------------------
Loss before income taxes (551) (1,462)(443) (3,917) (994) (5,379)
Income tax benefit --- (343)
----------------- ------------------- (347) -- (689)
--------------------- --------------------- --------------------- ---------------------
Net loss ($ 551)443) ($1,119)
================= ================= 3,570) ($ 994) ($4,690)
===================== ===================== ===================== =====================
Loss per share, basic ($ 0.14)0.11) ($ 0.30)
================= =================0.96) ($ .26) ($ 1.26)
Shares used to compute loss
per share, 3,841,000 3,732,000basic 3,881,000 3,735,000 3,861,000 3,734,000
Loss per share, diluted ($ 0.11) ($ 0.96) ($ .26) ($ 1.26)
Shares used to compute loss
per share, diluted 3,881,000 3,735,000 3,861,000 3,734,,000
See notes to condensed consolidated financial statements
4
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
ThreeSix months ended
------------------------------------------------
June----------------------------------------------
September 26, September 27, June 28,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net loss $ (551) $(1,119)(994) $(4,690)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 254 508504 1,009
Loss on sale of plant and equipment -- 5
Restructuring charge -- 1,300
Inventory write-off -- 850
Changes in assets and liabilities:
Accounts receivable (1,314) 1,848(2,396) 3,246
Inventories, net 362 (1,318)269 (978)
Prepaid expenses and other current assets (46) (304)1,588 66
Accounts payable and accrued expenses 374 (2,586)
-------------------- ---------------------542 (3,988)
----------------- ------------------
Total adjustments (370) (1,847)
-------------------- ---------------------507 1,510
----------------- ------------------
Cash used in operating activities (921) (2,966)(487) (3,180)
Investing activities:
Proceeds from sale of plant and equipment -- 7
Acquisition of plant and equipment (7) (218)-- (342)
Increase in software development costs and
other assets (30) (86)
-------------------- ---------------------(60) (136)
----------------- ------------------
Cash used in investing activities (37) (297)(60) (471)
Financing activities:
Net proceeds from issuance of common stock 12 --102 50
Borrowings on line of credit 100 300876 4,390
Payments of long-term capital lease obligations (4) (14)
-------------------- ---------------------(8) (16)
----------------- ------------------
Cash provided by financing activities 108 286
-------------------- ---------------------970 4,424
----------------- ------------------
Effect of exchange rate changes on cash -- (3)3
Net decreaseincrease in cash and cash equivalents (850) (2,980)423 776
Cash and cash equivalents at the beginning of period 1,229 4,431
-------------------- -------------------------------------- ------------------
Cash and cash equivalents at the end of period $ 3791,652 $ 1,451
==================== =====================5,207
================= ==================
See notes to condensed consolidated financial statements
5
ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 27,SEPTEMBER 26, 1999
1. Basis of Presentation -- The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
threesix month period ended June 27,September 26, 1999 are not necessarily indicative of the
results that may be expected for the year ended March 26, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
March 28, 1999.
2. Comprehensive Income -- Statement of Financial Accounting Standards No. 130
" Reporting"Reporting Comprehensive Income" (SFAS 130) requires the reporting and display
of comprehensive income and its components. Under this standard, certain
revenues, expenses, gains and losses recognized during the period are included
in comprehensive income, regardless of whether they are considered to be results
of operations of the period. During the firstsecond quarter of fiscal 2000, total
comprehensive loss amounted to $551,000$443,000 versus comprehensive loss of $1,080,000$3,534,000
for the second quarter of fiscal 1999. Comprehensive loss for the first quartersix
months of fiscal 1999.2000 was $994,000 versus comrehensive loss for the first six
months of fiscal 1999 of $4,665,000. The difference between comprehensive loss
and net loss as reported on the Consolidated Statements of Operations for the
period ended June 27, 1998 is
attributable to the foreign currency translation adjustment.
3. New Accounting Pronouncements -- The Company has not yet adopted Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) which is required to be adopted in fiscal
2002, as amended by Financial Accounting Standards No. 137. Adoption of this
standard is not expected to have a material impact on the Company's financial
position or results of operations.
4. Inventories -
June 27, March 28,
(in thousands) 1999 1999
------------- -----------
Raw Material $1,713 $1,966
Work in Process 3,255 3,441
Finished Goods 563 486
------------- -----------
$5,531 $5,893
============= ===========
September 26, March 28,
(in thousands) 1999 1999
------------- --------------
Raw Materials $ 1,833 $ 1,966
Work in Process 3,413 3,441
Finished Goods 378 486
------------- --------------
$ 5,624 $ 5,893
============= ==============
5. Restructuring and Other Charges -- In the second quarter of fiscal 1999, the
Company announced a plan to consolidate its UK wafer handling and inspection
operations. This plan included the closure of the Company's UK facility and
related transfer of manufacturing and other operations to the United States as
well as the discontinuation of several older product models in an effort to
focus the operation's product offerings. In conjunction with this plan, the
Company recorded a $2.2 million special charge
including a $850,000 charge to
cost of sales for inventory write-downs related to product discontinuation and a
$1.3 million restructuring charge. The principal components of the restructuring
charge include
6
$627,000 for a write-down of fixed and other long-term assets no longer used by
the operation, $241,000 for severance related charges, $325,000 for a write-down
of goodwill related to the impairment of such assets indicated using estimated
future cash flows, and $65,000 of lease termination and related costs. As of
January 1999, the closure and transfer were substantially complete, fixed assets
were disposed of and severance related costs were paid.
In the fourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset base.
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally of excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
6. Credit Facility -- On June 22, 1999 the Company entered into a loan
modification agreement (the "Credit Agreement") which extends the expiration
date of its revolving line of credit with a bank to November 1, 1999 (the "Line
of Credit"). Borrowings under the Line of Credit were $475,000 and $575,000 at
March 28, 1999 and June 27, 1999, respectively. Terms of the Credit Agreement
specify that as of June 22, 1999, maximum availability under the Line of Credit
was equal to the lesser of (i) $1.3 million or (ii) 80% of qualified accounts
receivable (the "Borrowing Base"). Such maximum availability decreases to the
lesser of (i) $350,000 or (ii) the Borrowing Base after the earlier of August
31, 1999 or receipt by the Company of a refund of federal taxes paid by the
Company in respect of fiscal 1998, which refund the Company expects will be
approximately $1.3 million. At June 27, 1999, the Borrowing Base was $1.3
million. The Credit Line is secured by all assets of the Company. The Credit
Agreement establishing the Credit Line prohibits the payment of dividends
without the bank's consent and requires the maintenance of specified debt to net
worth and current ratios. The Credit Agreement also requires that the Company
not incur quarterly net losses of more than a specified amount. As of June 27,
1999, the Company was in compliance with its bank covenants.
The Company is currently refinancing its bank debt and has received a
commitment from another lender to provide a replacement credit line to the
Company. The replacement line of credit which will have a two year term will
allow for maximum availability of $3.0 million based on a percentage of qualifed
accounts receivable and inventory. The line will be secured by all the assets of
the Company and will be subject to certain financial covenants including
specified levels of net worth, and debt to net worth ratios and limitations on
capital expenditures. The replacement line of credit will accrue interest at a
rate of prime plus 1.5%. The lender may alter or terminate its commitment with
respect to the replacement line of credit if there is any material adverse
change in the Company's financial position or otherwise. However, to the extent
that these is a shortfall of funds under the commitment, management has the
ability and intent to adjust the Company's cash flows to be able to meet
operational needs at least through the end of fiscal 2000
7
7. Repayment of Loan -- On July 6, 1999, an executive officer repaid $140,000
to the Company in settlement of the principal portion of an outstanding loan.
The Company agreed to forgive interest accrued on the loan through July 6, 1999.
8. Taxes -- No tax benefit was recorded in the first quarter of fiscal 2000
because no benefit from operating loss carryback provisions was available to the
Company. The Company recorded a valuation allowance for deferred tax assets,
principally representing net operating loss carryforwards and other deferred tax
assets the realization of which the Company does not deem more likely than not.
8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months ended June 27, 1999
Results of Operations-Overview
------------------------------
During fiscal 1999, the Company undertook several actions to address the
impact on the Company of the industry-wide drop in demand for semiconductor
capital equipment that started in the latter part of fiscal 1998. None of these
actions had a financial impact in the first quarter of fiscal 1999. However, in
the second quarter of fiscal 1999, the Company recorded a special charge of $2.2
million
including a $850,000 charge to cost of sales for inventory write-downs related
to product discontinuation and a $1.3 million restructuring charge. The
principal components of the restructuring charge included $627,000 for a write-
down of fixed and other long-term assets no longer used by the operation,
$241,000 for severance related charges, $325,000 for a write-down of goodwill
related to the impairment of such assets indicated using estimated future cash
flows, and $65,000 of lease termination and related costs. As of January 1999,
the closure and transfer were substantially complete, fixed assets were disposed
of and severance related costs were paid.
In the fourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset basebase.
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally ofto excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
Quarter6. Credit Facility -- On August 19, 1999, the Company entered into a two-year
revolving credit agreement (the "Credit Agreement") allowing for maximum
availability of $3.0 million based on a percentage of qualified accounts
receivable and inventory. Borrowings under the Credit Agreement are secured by
all the assets of the Company and are subject to certain financial covenants
including specified levels of net worth, and debt to net worth ratios and
limitations on capital expenditures. Interest accrues on outstanding balances
under the Credit Agreement at prime plus 1.5%. As of November 5, 1999,
availability under this facility was $3.0 million. The Company's indebtedness
for borrowed money was $1,351,000 at September 26, 1999, compared to $475,000 at
March 28, 1999. As of September 26, 1999, the Company was in compliance with all
covenants under the Credit Agreement.
7. Repayment of Loan -- On July 6, 1999, an executive officer repaid $140,000
to the Company in settlement of the principal portion of an outstanding loan.
The Board of Directors agreed to forgive all accrued interest on such loan.
8. Taxes -- No tax benefit was recorded in the second quarter of fiscal 2000
because no benefit from operating loss carryback provisions was available to the
Company. The Company recorded a valuation allowance for deferred tax assets,
principally representing net operating loss carryforwards and other deferred tax
assets the realization of which the Company does not deem more likely than not.
9. Merger -- On September 20, 1999, the Company announced a definitive merger
agreement with Micro Component Technology, Inc., a test handler manufacturer.
The transaction, which is structured as a stock merger, is valued at
approximately $16.3 million, subject to certain adjustments. The agreement has
been approved by the Board of Directors of each company and is subject to
approval by the shareholders of each company and regulatory agencies. The
Company anticipates that the merger will close in December 1999.
7
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the three and six months ended September 26, 1999 and September 27, 1998
Pending Merger
--------------
On September 20, 1999, the Company announced a definitive merger agreement
with Micro Component Technology, Inc., a test handler manufacturer. The
transaction, which is structured as a stock merger, is valued at approximately
$16.3 million, subject to certain adjustments. The agreement has been approved
by the Board of Directors of each company and is subject to approval by the
shareholders of each company and regulatory agencies. The Company anticipates
that the merger will close in December 1999.
Results of Operations-Overview
------------------------------
During fiscal 1999, the Company undertook several actions to address the
impact of the market downturn on the Company. In the second quarter of fiscal
1999, the Company recorded a special charge of $2.2 million including a $850,000
charge to cost of sales for inventory write-downs related to product
discontinuation and a $1.3 million restructuring charge. The principal
components of the restructuring charge included $627,000 for a write-down of
fixed and other long-term assets no longer used by the operation, $241,000 for
severance related charges, $325,000 for a write-down of goodwill related to the
impairment of such assets indicated using estimated future cash flows, and
$65,000 of lease termination and related costs. As of January 1999, the closure
and transfer were substantially complete, fixed assets were disposed of and
severance related costs were paid.
In the fourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset base.
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally to excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
Three and Six Months Ended JuneSeptember 26, 1999 and September 27, 1999 Compared to Quarter Ended June 28, 1998
-------------------------------------------------------------------- ---------------------------------------------------------------------
Net sales for the firstsecond quarter of fiscal 2000 decreasedincreased 29% to $4.7$5.7
million from $6.6$4.4 million for the firstsecond quarter of fiscal 1999. For the first
six months of fiscal 2000, net sales decreased 6% to $10.4
8
million from $11.0 million for the same period last year. The decreaseincrease in
quarterly net sales resulted from the industry-wide dropan increase in demand for semiconductorsthe Company's
products, particularly those serving the small outline (SO) and accelerometer
product markets, resulting from improved semiconductor capital equipment.equipment market
conditions.
International sales represented approximately 19%18% of net sales in the
second quarter and first quartersix months of fiscal 2000 compared to 35% and 42% of
net sales in the samesecond quarter last
year as shipments to the Pacific Rim region declined.
9
and first six months of fiscal 1999,
respectively.
Gross profit for the firstsecond quarter of fiscal 2000 was $1.9$2.3 million, or 40%41%
of net sales, compared to $2.6 million,$754,000, or 39%17% of net sales, in the firstsecond quarter
of fiscal 1999. During the first six months of fiscal 2000, gross profit was
$4.2 million, or 41% of net sales compared to $3.3 million, or 30% of net sales,
for the same period in fiscal 1999. Gross profit in the second quarter of fiscal
1999 was impacted by a special charge of $850,000 described above in the section
"Results of Operations-Overview". Additionally, gross profit in both quartersperiods was
significantly influenced by a product shipment mix including a larger component
of the Company's lower gross margin productsproducts.
Research and manufacturing excess capacity because of lower production
levels. Despite the lower net sales levelsdevelopment costs decreased 30% to $850,000 in the firstsecond
quarter of fiscal 2000 the gross profit percentage increased 1% as a result of the Company's reduced
manufacturing cost structure compared tofrom $1.2 million in the same quarter last year. Research
and development costs for the first six months of fiscal 2000 decreased 48%41% to
$856,000$1.7 million from $2.9 million in the first quartersix months of fiscal 2000 from $1.7 million in the same quarter lastprior year. The
decrease in spending was primarily the result of workforce reductions
implemented during fiscal 1999. Development spending in the first quartersix months of
fiscal 2000 was focused on various enhancements and features for the Company's
test handlersexisting products and a new test handler platform.
Selling, general and administrative expenses decreased 32%14% to $1.6$1.9 million
in the firstsecond quarter of fiscal 2000 from $2.4$2.2 million in the firstsecond quarter of
fiscal 1999. During the first six months of fiscal 2000, selling, general and
administrative expenses decreased 23% to $3.5 million compared to $4.5 million
for the same period in fiscal 1999. The decrease in selling, general and
administrative expenses was a result of reductions in headcount during fiscal
1999 and strict controls over discretionary spending.
As a result of the above, the Company generated an operating loss of
$566,000$402,000 for the second quarter of fiscal 2000 and $968,000 for the first quartersix
months of fiscal 2000 compared to an operating loss of $1.5$3.9 million and $5.4
million in the second quarter and first quartersix months of fiscal 1999.1999, respectively.
Other income (expense), net consists primarily of interest income earned on
cash and cash equivalents and interest expense paid on
the Company's outstanding line of credit balance.
The Company recorded no income tax benefit in the second quarter and first
quartersix months of fiscal 2000 because no benefits from operating loss carryback
provisions were available to the Company. The Company recorded a valuation
allowance for deferred tax assets, principally representing net operating loss
carryforwards and other deferred tax assets, the realization of which the
Company does not deem more likely than not.
Net loss for the firstsecond quarter of fiscal 2000 was $551,000,$443,000, or $.14$.11 per
share, compared to net loss of $1.1$3.6 million, or $.30$.96 per share, in the firstsecond
quarter of fiscal 1999. Net loss for the first six months
9
of fiscal 2000 was $994,000, or $.26 per share, compared to net loss of $4.7
million, or $1.26 per share, in the same period last year.
Liquidity and Capital Resources
-------------------------------
The Company historically has funded its operations primarily through cash
flows from operations, bank borrowings and the private and public sale of equity
securities. At June 27,September 26, 1999, the Company had borrowings,cash, net of cash on handborrowings, of
$196,000$301,000 and working capital of approximately $7.4$7.3 million.
The Company used approximately $921,000$487,000 in cash for operating activities
during the first quartersix months of fiscal 2000. The primary working capital factors
affecting cash from operations were accounts receivable, inventory and accounts
payable and accrued expenses. Accounts receivable increased approximately $1.3$2.4
million as a result of a sequential quarterlyan increase in net sales for whichfrom March 1999. Additionally,
the majority of second quarter equipment was shippedshipments occurred in the last two weeksmonth of
the second quarter. Inventory decreased approximately $362,000$269,000 during the first
quartersix months of fiscal 2000 as the Company was able to manage
10
material receipts
and ship product from finished inventory. Accounts payable and accrued expenses
increased approximately $374,000$542,000 during the first quartersix months of the year as a
result of the increase in business volumevolume. Lastly, in the second quarter of
fiscal 2000, the Company received an income tax refund in the amount of
approximately $1.3 million related to federal taxes paid by the Company in
fiscal 1998 and the lengthening of the payment
cycle for certain vendors.prior periods.
The Company used approximately $30,000 to fund internal software
development costs while capital expenditures were $7,000deminimus as a result of a
Company-wide freeze on capital spending.
The Company has a revolving line of credit with a bank which expires November
1, 1999 (the "Line of Credit"). Borrowings under the Line of Credit were
$575,000 at June 27, 1999. As of June 27, 1999, maximum availability under the
Line of Credit was equal to the lesser of (i) $1.3 million or (ii) 80% of
qualified accounts receivable (the "Borrowing Base"). Such maximum availability
decreases to the lesser of (i) $350,000 or (ii) the Borrowing Base after the
earlier ofOn August 31, 1999 or receipt by the Company of a refund of federal
taxes paid by the Company in respect of fiscal 1998, which refund the Company
expects will be approximately $1.3 million. At June 27, 1999, the Borrowing Base
was $1.3 million. The Credit Line is secured by all assets of the Company. The
credit agreement establishing the Credit Line prohibits the payment of dividends
without the bank's consent and requires the maintenance of specified debt to net
worth and current ratios. The credit agreement also requires that the Company
not incur quarterly net losses of more than a specified amount. As of June 27,19, 1999, the Company was in compliance with its bank covenants.
The Company is currently refinancing its bank debt and has receivedentered into a commitment from another lender to provide a replacementtwo-year revolving credit
line to the
Company. The replacement line of credit which will have a two year term will
allowagreement (the "Credit Agreement") allowing for maximum availability of $3.0
million based on a percentage of qualifedqualified accounts receivable and inventory.
The line will beBorrowings under the Credit Agreement are secured by all the assets of the
Company and will beare subject to certain financial covenants including specified
levels of net worth, and debt to net worth ratios and limitations on capital
expenditures. The replacement line of credit will accrue interestInterest accrues on outstanding balances under the Credit
Agreement at a
rate of prime plus 1.5%. As of November 5, 1999, availability under this
facility was $3.0 million. The bank may alter or terminate its commitmentCompany's indebtedness for borrowed money was
$1,351,000 at September 26, 1999, compared to $475,000 at March 28, 1999. As of
September 26, 1999, the Company was in compliance with respect to the replacement line of credit if there is any material adverse
change in the Company's financial position or otherwise. However, to the extent
that there is a shortfall of fundsall covenants under the
commitment, management has the
ability and intent to adjust the Company's cash flows to be able to meet
operational needs at least through the end of fiscal 2000.Credit Agreement.
Although the Company is cautiously optimistic that it will benefit from
improvingregarding market conditions
in the semiconductor market generally, improvementindustry, the Company continues to expect to be effected by
a more gradual recovery in the Company's resultsmarket and the effect of operation may be tempered by technologicalexpected future
technology changes in semiconductor packaging designs impacting the demand forthis market upon the Company's current
products.product line. As a result,
the Company intends to monitor, and further reduce if necessary, its expenses if
projected lower net sales levels continue. Although the Company anticipates that
it will incur losses in future quarters which will negatively impact its
liquidity position, the Company believes that funds generated from operations,
existing cash balances and available borrowing capacity will be sufficient to
meet the Company's cash requirements for at least the next twelve months.
However, if the Company is unable to meet its operating plan, and in particular
its forecast for product shipments, the Company may require additional capital.
There can be no assurance that if the Company is required to secure additional
capital that such capital will be available on reasonable terms, if at all, at
such time as required by the Company.
The Company has been notified by The Nasdaq-Amex Group that the Company is
currently not in compliance with the Nasdaq National Market listing requirement
that the market value of the Company's common stock held by the public be
greater than $5,000,000. If the Company is unable to satisfy this requirement
for a specified number of consecutive days prior to September 16, 1999, its
common stock will be delisted at the opening of business on September 20, 1999.
Although in that event the Company
1110
could apply to list its shares with the Nasdaq SmallCap Market, its delisting
from the Nasdaq National Market could adversely affect the liquidity of the
Company's stock. In addition, delisting from the Nasdaq National Market might
negatively impact the Company's reputation and, as a consequence, its business.
Year 2000
---------
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in a computer
recognizing a date using "00" as the year 1900 rather than the year 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 Problem".
In the second quarter of fiscal 1999, the Company completed its
implementation of a new enterprise-wide management information system that the
vendor has represented is Year 2000 compliant. In addition, the Company has
completed an assessment of other software used by the Company for Year 2000
compliance and has noted no material instances of non-compliance. On an on-going
basis, the Company reviews each of its new hardware and software purchases to
ensure that it is Year 2000 compliant. The Company has also conducted a review
of its product line and has determined that most of the products it has sold and
will continue to sell do not require remediation to be Year 2000 compliant. This
conclusion is based partly on third party representations that product
components, such as personal computers, will be yearYear 2000 compliant. The Company
had no means of ensuring that such suppliers' components will be Year 2000
compliant.
The Company is in the process of gathering information about the Year 2000
compliance status of its significant suppliers and customers. Additionally, the
compliance status of the Company's external agents who process vital Company
data such as payroll, employee benefits, and banking information have been
queried for Year 2000 compliance. To date, the Company is not aware of any such
external agent with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company had
no means of ensuring that external agents will be Year 2000 ready.
To date the Company has incurred approximately $870,000 ($207,000 expensed
and $663,000 capitalized for new systems and equipment) related to all phases of
the Year 2000 compliance initiatives.
Although the Company does not believe that it will incur any additional
material costs or experience material disruptions in its business associated
with preparing its internal systems for Year 2000 compliance, there can be no
assurances that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which is comprised of third party
software and third party hardware that contain embedded software.
The most reasonably likely worst case scenarios would include (i)
corruption of data contained in the Company's internal information systems
relating to, among other things, manufacturing and customer orders, shipments
billing and collections, (ii) hardware failures, (iii) the failure of
infrastructure services provided by government agencies and other third parties
(i.e., electricity, phone service, water transport, payroll, employee benefits,
etc.), (iv) warranty and litigation expense associated with third-party software
incorporated into the Company's products that is not Year 2000 compliant, and
(v) a decline in sales resulting from disruptions in the economy generally due
to Year 2000 issues.
12
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve among other
actions, manual workarounds and adjusting staffing strategies.
11
Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private
- ----------------------------------------------------------------------------
Securities Litigation Reform Act of 1995
- ----------------------------------------
This Report on Form 10-Q10Q contains forward-looking statements relating to
future events or the future financial performance of the Company. Readers are
cautioned that such statements, which may be identified by words including
"anticipates," "believes," "intends," "estimates," "plans," and other similar
expressions, are only predictions or estimations and are subject to known and
unknown risks and uncertainties, over which the Company has little or no
control. In evaluating such statements, readers should consider the various
factors identified below which could cause actual events, performance or results
to differ materially from those indicated by such statements.
Liquidity -- As of September 26, 1999 the Company had cash, net of
borrowings, of $301,000 and working capital of approximately $7.3 million. As a
result of anticipated continued weakness in the semiconductor market, the
Company expects to incur further losses in future quarters which will negatively
impact its liquidity position. Although the Company believes that funds
generated from operations, existing cash balances and available borrowing will
be sufficient to meet the Company's cash requirements for at least the next
twelve months, if the Company is unable to meet its operating plan, the Company
may require additional capital. There can be no assurance that if the Company is
required to secure additional capital that such capital will be available on
reasonable terms, if at all, at such time as required by the Company.
Semiconductor Market Fluctuations -- The semiconductor market has
historically been cyclical and subject to significant economic downturns at
various times, which often have a disproportionate effect on manufacturers of
semiconductor capital equipment. As a result, there can be no assurance that the
Company will not experience material fluctuations in future quarterly or annual
operating results as a result of such a market fluctuation. The semiconductor
industry in recent periods has experienced decreased demand, and it is uncertain
how long these conditions will continue.
Reliance on Distributor -- In November 1997, Aseco entered into a
distribution agreement with Rasco A.G. ("Rasco") pursuant to which Aseco markets
and sells Rasco's SO1000 test handler in the United States, Canada and Taiwan.
To achieve sales objectives, the Company must rely on Rasco to build and ship
test handlers in accordance with a quarterly schedule. There can be no assurance
that Rasco will be able to consistently meet such a schedule. Accordingly, the
Company's operating results are subject to variability from quarter to quarter
and could be adversely affected for a particular quarter if shipments for that
quarter were lower than anticipated. Additionally, termination of the Rasco
relationship with the Company could adversely affect the Company's financial
performance. There can be no assurance that the Company will be able to retain
its current distribution agreement with Rasco.
Variability in Quarterly Operating Results -- During each quarter, the
Company customarily sells a limited number of systems, thus a change in the
shipment of a few systems in a quarter can have a significant impact on results
of operations for a particular quarter. To achieve sales objectives, the Company
must generally obtain orders for systems to be shipped in the same quarter in
which the order is obtained. Moreover, customers may cancel or reschedule
shipments with limited or no penalty, and production difficulties could delay
shipments. Accordingly, the Company's operating results are subject to
significant variability from quarter to quarter and could be adversely affected
for a particular quarter if shipments for that quarter were lower than
anticipated. Moreover, since the Company ships a significant quantity of
products at or near the end of each quarter, the magnitude of fluctuation is
not known until late in or at the end of any given quarter.
New Product Introductions -- The Company's success depends in part on its
continued ability to develop and market new products. There can be no assurance
that the Company will be able to develop and introduce new products in a timely
manner or that such products, if developed, will achieve market acceptance.
Additionally there can be no assurance that the Company will be able to
manufacture such products at profitable levels or in sufficient quantities to
meet customer requirements. The inability of the Company to do any of the
foregoing could have a material adverse effect on the Company's operating
results.
International Operations -- In the second quarter and first six months of
fiscal 2000, 18% of the Company's net sales were derived from customers in
international markets compared to 35% and 42% in the second quarter and first
six months of fiscal 1999. The Company is therefore subject to certain risks
common to many export activities, such as governmental regulations, export
license requirements, air transportation disruptions, freight rates and the risk
of imposition of tariffs and other trade barriers. A portion of the Company's
international sales are invoiced in foreign currencies and, accordingly, are
subject to fluctuating currency exchange rates. As such there can be no
assurance that the Company will be able to protect its position by hedging its
exposure to currency exchange rate fluctuations.
Competition -- The markets for the Company's products are highly
competitive. The Company's competitors include a number of established companies
that have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company also competes with a number of
smaller companies. There can be no assurance that the Company will be able to
compete successfully against current and future sources of competition or that
the competitive pressures faced by the Company will not adversely affect its
profitability or financial performance.
Customer Concentrations -- Although the Company has a growing customer
base, from time to time, an individual customer may account for 10% or more of
the Company's quarterly or annual net sales. During the fiscal year ended
March 28, 1999, two customers accounted for 14% and 13% of net sales,
respectively. The Company expects that such customer concentration of net sales
will continue to occur from time to time as customers place large quantity
orders with the Company. As a result, the loss of, or significant reduction in
purchases by any such customer could have an adverse effect on the Company's
annual or quarterly financial results.
Investments in Research & Development -- The Company is currently investing
in specific time-sensitive strategic programs related to the research and
development area which the Company believes is critical to its future ability to
compete effectively in the market. As such, the Company plans to continue to
invest in such programs at a planned rate and not to reduce or limit the
increase in such expenditures until such programs are completed. As a result
there can be no assurance that such expenditures will not adversely affect the
Company's quarterly or annual profitability or financial performance.
Reliance on Third-Party Distribution Channels -- The Company markets and
sells its products primarily through third-party manufacturers' representative
organizations which are not under the direct control of the Company. The Company
has limited internal sales personnel. A reduction in the sales efforts by the
Company's current manufacturers' representatives or a termination of their
relationships with the Company could adversely affect the Company's operations
and financial performance. There can be no assurance that the Company will be
able to retain its current manufacturers' representatives or its distribution
channels by selling directly through its sales employees or enter into
arrangements with new manufacturers' representatives.
Dependence on Key Personnel -- The Company's success depends to a
significant extent upon a number of senior management and technical personnel.
These persons are not bound by employment agreements. The loss of the services
of a number of these key persons could have a material adverse effect on the
Company. The Company's future results are difficultsuccess will depend in large part upon its ability
to predictattract and mayretain highly skilled technical, managerial and marketing
personnel. Competition for such personnel in the Company's industry is intense.
There can be affectedno assurance that the Company will continue to be successful in
attracting and retaining the personnel it requires to successfully develop new
and enhanced products and to continue to grow and operate profitably.
Dependence on Proprietary Technology -- The Company's success is dependent
upon proprietary software and hardware which the Company protects primarily
through patents and restrictions on access to its trade secrets. There can be no
assurance that the steps taken by a numberthe Company to protect its proprietary rights
will be adequate to prevent misappropriation of importantits technology or independent
development by others of similar technology. Although the Company believes that
its products and technology do not infringe any existing proprietary rights of
others, the use of patents to protect software and hardware has increased and
there can be no assurance that third parties will not assert infringement claims
against the Company in the future.
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
There has been no material change in the Company's assessment of its
sensitivity to market risk factors including, but not limited to, the factors listedfrom that described in the Company's Annual Report
on Form 10K10-K for the fiscal year ended March 28, 1999.
The Company wishes to caution readers that those important factors, in some
cases, have affected, and in the future could affect, the Company's actual
consolidated quarterly or annual operating results and could cause those actual
consolidated quarterly or annual operating results to differ materially from
those expressed in any forward looking statements made by, or on behalf of, the
Company.
1312
ASECO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities and Use of Proceeds:
None.
Item 3. Defaults upon Senior Securities:
None.
Item 4. Submissions of Matters to a Vote of Security Holders:
None.On August 11, 1999, the annual Meeting of Stockholders was held and
the following matters were voted upon:
1. Dr. Sheldon Buckler and Dr. Gerald L. Wilson were elected to the
Board of Directors, for three year terms. The vote was 3,388,932
in favor, 173,543 withheld.
2. An amendment to the Company's Employee Stock Purchase Plan
increasing the number of shares issuable under such plan from
150,000 to 500,000. The vote was 3,354,756 in favor, 196,348
against, and 8,371 abstaining.
3. Certain amendments to the Company's 1993 Non-Employee Director
Stock Option Plan. The vote was 3,322,796 in favor, 223,626
against, and 16,053 abstaining.
4. The Board of Directors' selection of Ernst & Young LLP as the
Company's independent auditors for the year ended March 26, 2000
was ratified with 3,442,091 in favor, 101,799 against, and 18,585
abstaining.
Item 5. Other Information:
None.
Item 6. Listing of Exhibits
Exhibit Description
No.
10.24 Commercial Revolving Loan and reports on Form 8-K:
a. Exhibits - None
b. There were no reports on Form 8-KSecurity Agreement dated August 19,
1999, between the Company and American Commercial Finance Corporation,
filed forherewith.
2.0 Agreement and Plan of Merger, dated as of September 18, 1999 by and
between the three months ended
June 27, 1999.
14Company, Micro Technology, Inc., and MCT Acquisition,
Inc.
13
ASECO CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signature Title Date
/s/ Sebastian J. Sicari President, Chief Executive Officer August 11, 1999
- -----------------------Signature Title Date
/s/ Sebastian J. Sicari President, Chief Executive Officer November 10, 1999
- ------------------------- (principal executive officer)
Sebastian J. Sicari
/s/ Mary R. Barletta Vice President, Chief Financial Officer, August 11, 1999
- ----------------------- Treasurer (principal financial and accounting
Mary R. Barletta officer)
15Sebastian J. Sicari
/s/ Mary R. Barletta Vice President, Chief Financial November 10, 1999
- ------------------------- Officer, Treasurer
Mary R. Barletta (principal financial and
accounting officer)
14